For the first time in 25 years since the foreign exchange crisis, South Korea’s economic growth rate last year fell behind Japan. However, projections indicate South Korea is expected to outpace Japan again this year. Due to prolonged low growth, Japan’s economic size has slipped to the place of fourth largest in the world, trailing behind Germany for the first time in 55 years.
The Cabinet Office of Japan announced on Feb. 15 that Japan’s real Gross Domestic Product (GDP) growth rate for last year was 1.9%. In contrast, the Bank of Korea announced on Jan. 25 that South Korea’s real GDP growth rate for the same period was 1.4%, making Japan’s growth rate 0.5 percentage points higher. This is the first time South Korea’s growth rate has lagged behind Japan’s since the country entered its second year of the foreign exchange crisis in 1998, which led to an International Monetary Fund (IMF) bailout.
Japanese foreign media have highlighted that South Korea’s growth rate has fallen behind Japan’s after Japan experienced long-term stagnation following the collapse of its so-called “bubble economy” in the 1990s. Similar to Japan, South Korea is facing worsening demographic changes due to low birth rates and aging, suggesting Korea could follow a similar path. Nihon Keizai Shimbun noted, “Last year, structural problems, not just temporary setbacks like the semiconductor downturn, began to surface, leading to a growing view that South Korea has entered a period of low growth.”
Nevertheless, there might be a reversal of fortune this year. The global economic outlook predicts South Korea’s real GDP growth rate for this year at 2.3%, compared to Japan’s 0.9%. However, the possibility that South Korea could follow in Japan’s footsteps remains a significant implication. According to the IMF’s “2023 South Korea Annual Consultation Report,” South Korea’s real GDP growth rate is expected to continue in the low 2.1-2.3% range of until 2028.
According to the Cabinet Office of Japan, Japan’s nominal GDP last year increased by 5.7% from the previous year to 591.482 trillion yen (US$3.93939 trillion). Germany’s nominal GDP last year was 4.1211 trillion euros (US$4.4368 billion), making Germany’s nominal GDP approximately US$300 billion larger than Japan’s.
Japan lagging behind Germany, which has seen a slowdown in economic growth, further highlights the decline in Japan’s economic power. Germany, known as the “growth engine of Europe,” experienced a real GDP growth rate of -0.3% last year, marking its first contraction in three years. Notably, Japan’s population is 51% larger than Germany’s.
Asahi Shimbun reported, “Japan’s GDP falling behind Germany last year was significantly influenced by the yen’s weakness and Germany’s inflation, but in the long term, Germany’s economic growth rate has outpaced Japan’s. Based on IMF data, a simple calculation of the real growth rate from 2000 to 2022 shows that Germany’s was 1.2%, while Japan’s remained at 0.7%.”